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Impact brings you compelling stories, inspiring research, and big ideas from ACU. It's about the impact we’re having on our communities, and our Mission in action. It’s a practical resource for career, life and study.

At ACU it’s education, but not as you know it. We stand up for people in need, and causes that matter.

Bashing the banks: who should pay the price for the misconduct exposed by the royal commission?

Author: Menios Constantinou

The landmark inquiry into the financial services industry has exposed a litany of lies and deceit. But as we bay for banking blood, who should bear the brunt of our anger? We explore this ethical dilemma with Dr Stephanie Collins, research fellow in philosophy at ACU.

“Banking shame”, scream the tabloid TV headlines at the transgressions exposed by the financial services royal commission. Since the first public hearings in March, the inquiry has revealed details of dodgy lending practices, alleged bribery and fraud, and banks charging fees to dead customers.

Meanwhile, the banking sector has been left with the unenviable task of quelling the rage as the commission's revelations continue.

But who exactly is to blame when powerful corporations act unethically?

Dr Stephanie Collins, research fellow at ACU’s Centre for Moral Philosophy and Applied Ethics, says it’s a mistake to automatically pin the blame on the board members, executives, shareholders and employees of those institutions. Rather than targeting individuals, we should take aim at the organisations themselves.

“It's very unlikely that any individual ever sat down and consciously decided to charge fees for no service,” Dr Collins said.

“Rather than trying to hunt down and punish the current board members or CEOs of a corporation, we should instead look at the organisation itself as a moral agent; a creature with its own beliefs, goals and preferences, that sets its own values and can make its own decisions. The organisation is the entity which has robbed us, and it should be held to account.”

Do bad organisations make good people do bad things?

It didn’t take long for the royal commission to claim its first scalps. In late April, AMP’s chief executive Craig Meller and chair Catherine Brenner stepped down after it was revealed the company had repeatedly lied to the corporate regulator, and more directors soon followed suit.

It may seem natural for the senior people within the institutions that acted improperly to shoulder the blame. And indeed, shareholder bodies responded to the revelations heard at the royal commission by declaring those at the top had “serious questions to answer”.

However, Dr Collins argues that the main cause of the misconduct is a complex combination of factors beyond the control of any individual.

“When people go to work, they're expected to pursue the organisational goals, procedures, cultures and norms of the corporation in a way that is quite separate from the ethical considerations they might employ in their day-to-day lives,” Dr Collins said.

“They’re merely operating within the organisational setting in which they've found themselves, and it’s this setting, rather than the actions of individuals, that have led to the misconduct.”

Replace the board members and managers of AMP with almost any other human being, she said, and you’d “get more or less the same result”.

“Likewise, if you imagine the board members of AMP sitting on the board of non-profit organisation like the Red Cross, they would have to conform to a very different set of goals, values, procedures and preferences, and in that case the outcome would be quite different.”

The banks did the crime, but who does the time?

Sensing the public’s resentment towards the banks in the wake of the scandal, politicians have responded by foreshadowing harsh punishments.

The Federal Government has proposed tougher penalties for dodgy bankers, with the Treasurer, Scott Morrison, warning some could face imprisonment.

“What has been admitted to in the royal commission … is deeply disturbing,” Mr Morrison said. “This type of behaviour can attract penalties, which include jail time. That’s how serious these things are.”

But while we’re so keen to see heads roll, punishing individuals is unlikely to lead to long-term change within corporations. Dr Collins says it’s the organisations themselves that need to be punished in order to ensure they don’t run foul again.

So, what penalty fits the crime?

“Obviously organisations cannot be imprisoned, they are not the kind of creature on which we can inflict that kind of punishment,” she said.

Hefty fines and sanctions seem to be the answer. Under the government’s proposed tougher penalties, a company could be forced to pay fines of more than $200 million if it breaches the Corporations Act. And they face even bigger fines if they break other laws, as did the Commonwealth Bank in June, when it admitted to breaching anti-money laundering and counter-terrorism legislation.

“It’s true that fines can have knock-on effects to shareholders and employees … these are the unfortunate but unavoidable side effects of punishing the corporation or entity,” Dr Collins said.

“These traditional forms of punishment can be placed upon corporations, but we need to reconceive how they interact with the punishment of individuals, who are not blameworthy when organisations have acted badly.”

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Impact brings you compelling stories, inspiring research, and big ideas from ACU. It's about the impact we’re having on our communities, and our Mission in action. It’s a practical resource for career, life and study.

At ACU it’s education, but not as you know it. We stand up for people in need, and causes that matter.